HomeCrypto for BeginnersWhat is a fiat currency?

What is a fiat currency?

What is a fiat currency?

The word "fiat currency" refers to the money you use every day. The United States dollar, like most other modern currencies in circulation, is a fiat currency. The value of fiat currencies is often sustained by a government's economic strength. A distinct type of money is an asset-backed currency, which gets its value from an underlying asset. An asset-backed currency, for example, would be based on the value of gold. Although asset-backed currencies are legal tender, the international monetary system has stressed fiat money since the Great Depression. The phrase "fiat currency" is now widely used to distinguish traditional money from cryptocurrencies. Cryptocurrency is a digitally produced method of payment that does not require the assistance of a central bank to function.

Dollars were backed by reserves of precious assets such as gold and silver for many years. In the 1930s, the United States abandoned the gold standard for internal transactions, and foreign conversions were phased out in 1971. Since the 1960s, dollars have not been redeemable in silver. The Federal Reserve in the United States is now obligated to keep collateral equivalent to the value of the dollars in circulation, which it does using government-issued debt. To summarize, the dollar is valuable for two reasons:

- Because the government of the United States claims it does.

- Because investors and lenders across the globe think the United States will pay its bills.

Difference between fiat and cryptocurrencies

The major difference between fiat money and cryptocurrency is that the former does not require official support, but the latter does. The majority of cryptocurrencies are built utilizing blockchain, a cryptographic computer networking technology that allows them to circulate without the need for a central authority like the Federal Reserve. Many cryptocurrency supporters think that "decentralization," in which currencies are controlled by users rather than central authorities, would result in more efficient and less corrupt monetary systems.

Governments, on the other hand, are free to use cryptocurrencies and related technology in their national currency systems. El Salvador became the first country to accept Bitcoin as legal money in September 2021. China is also working on a digital version of its national money, the yuan. Because most cryptocurrencies aren't backed by governments, their value comes from a variety of places.

The value of Bitcoin, the first and most valuable cryptocurrency, is largely controlled by supply and demand market logic. Bitcoin has a limited quantity that is controlled by its underlying software, so as demand rises, so do prices. Because many cryptocurrency investors speculate on their future value, prices have been highly volatile in relation to the dollar.

Certain stablecoins however, are backed by a reserve of cash or other commodities in order to maintain their value.

Check out other levels

We use cookies to store, access and process personal data to give you the best online experience. By clicking Accept Cookies you consent to storing all cookies and ensure best website performance. You can modify cookie preferences or withdraw consent by clicking Cookie Settings. To find out more about cookies and purposes, read our Cookie Policy and Privacy Policy

Cookies settings


Cookie Control


What are cookies?

Cookies are small text files that enable us, and our service provides to uniquely identify your browser or device. Cookies normally work by assigning a unique number to your device and are stored on your browser by the websites that you visit as well as third-party service providers for those website. By the term cookies other technologies as SDKs, pixels and local storage are to be considered.


If Enabled

We may recognize you as a customer which enables customized services, content and advertising, services effectiveness and device recognition for enhanced security
We may improve your experience based on your previous session
We can keep track of your preferences and personalize services
We can improve the performance of Website.


If Disabled

We won't be able to remember your previous sessions, that won't allow us to tailor the website according to your preferences
Some features might not be available and user experience reduced without cookies


Strictly necessary means that essential functions of the Website can not be provided without using them. Because these cookies are essential for the properly working and secure of Website features and services, you cannot opt-out of using these technologies. You can still block them within your browser, but it might cause the disfunction of basic website features.

  • Setting privacy preferences
  • Secure log in
  • Secure connection during the usage of services
  • Filling forms

Analytics and performance tracking technologies to analyze how you use the Website.

  • Most viewed pages
  • Interaction with content
  • Error analysis
  • Testing and Measuring various design effectivity

The Website may use third-party advertising and marketing technologies.

  • Promote our services on other platforms and websites
  • Measure the effectiveness of our campaigns